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PHOENIX- With the national economy continuing to scrape bottom, Phoenix Q1 retail statistics, with their increasing vacancies, didn’t surprise anyone. According to CB Richard Ellis’ Q1 retail statistics, area-wide vacancy was 9.7% out of a 146 million square-foot inventory; a hike from last year’s 6.5% vacancy.

Area brokers tell GlobeSt.com the numbers were expected, and will probably get worse before things bottom out. “Everyone expected the market to soften and vacancies rise throughout the year,” comments Rick Murphy, senior vice president with CB Richard Ellis’ Phoenix office.

“Unfortunately, I think vacancies will continue to creep upward in 2009. We could see double digit vacancy rates this year and that’ll be the first time in a long time,” adds SRS Real Estate Partners’ vice president Ed Beeh, who is with the company’s Phoenix office.

But not all areas are being quite so hard. Outlying areas such as northwest Phoenix and Paradise Valley are seeing vacancies of 13.5% and 12.4% respectively. But this compares to Scottsdale, which reported a 5% and Apache Junction, which is just brushing 7%.

“Centers more on the outlying areas have been impacted more than products more infill,” Murphy explains. “I don’t care what your product is, if you’re infill, you’re doing better.”

The reason, of course, can be tied to single-family housing. During the mid-2000s boom times, housing starts exploded in the far west and northwest submarkets, with retail following rooftops. But people aren’t buying the houses. And retail tenants aren’t making commitments until the market straightens out.

Though many retailers are cautious about jumping in, others are seeing opportunities they might not have seen in a booming market. “What are perceived as high-end centers are not quite as choosy with their tenant mix,” Beeh comments. “If a retailer with strong financials comes along and is ready, willing and able, landlords are willing to do the deal.”

Murphy is optimistic about this aspect of the recession as well. “We’ll likely see new concepts from retailers, retailers who might be local right now with only three or four locations,” he comments. “A Macerich might come along and give them the space, because they have the financials.” Trader Joe’s was one such retailer that did very well from the previous downturn, Murphy says. So is Forever 21. “That was a 4,000-6,000-square-foot retailer, that’s now taking over 80,000 square feet where Mervyn’s was,” Murphy adds.

Another factor of the market is the growing demand for concessions from tenants. Beeh and Murphy say most, if not all renters, are asking for concessions, whether they’re needed or not. This puts the property owner or manager in somewhat of a bind. “Their whole focus is in retention and to maintain occupancy level, but who do they grant concessions to and how much do they grant?” Beeh says. The situation is further compounded if the tenant draws customers. If that tenant leaves, it could impact other tenants, he comments.

But property owners are getting pretty good at determining which tenant is truly on the ropes and need help and which want a free ride during uncertain economic times. “Landlords these days have to see the problems,” Murphy says. “Everything has to be in writing, they want the last years’ of sales to see where the tenants were and where they’re going. There’s a process and the landlords are getting good at it.”

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